OMG goes dividend crazy!

OMG has always thrown off lots of cash, but it's almost drowning in the green stuff after selling its defence software division for $25 million (£17 million) in April. There was another special dividend in these full-year results, with the regular payout also rising by 30%. And the underlying business is doing so well that N+1 Singer has upgraded profit forecasts by 10%.

Selling 2d3 to Boeing in April brought a huge windfall, which OMG has been redistributing since. It had already returned £11 million to shareholders via two special dividends, and today announced a further £4.4 million payout worth 3.75p per share. The ordinary dividend rises from 0.5p to 0.65p.

We drew attention to OMG a year ago with the shares at 30p, and again at the interims in June, after which the shares had risen to 45p. They since recovered from a summer drift lower and now trade at 47p.

But house broker N+1 Singer believes they’re worth more - up to 53p, with a free option on the Life intellectual property (IP) licensing business. While forecasts for the year to September are largely unchanged at adjusted pre-tax profit of £4.4 million and earnings per share (EPS) of 2.9p, estimates for 2017 jumped by double-digits to £5.4 million and 3.5p respectively.

That puts OMG shares on a forward price/earnings (PE) ratio of 16.2 times for 2016, dropping to 13.4 times on 2017 forecasts. Strip out Singer's guess at year-end net cash of £7.1 million (6p/share) in 2016, then £11.1 million (9.5p/share), and those multiples drop to 14 times and 10.7 times.

Revenue for the year ended 30 September 2015 inched higher to £25.8 million, but last year's £0.1 million loss turned to a pre-tax profit of £1.4 million this time. Ending marketing campaigns slashed spend at the Life division, where losses narrowed again from £4.3 million to £2.5 million.

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Deficits offset by record profits elsewhere

That deficit was easily offset by another record year at the Yotta business, which fits cameras on vans that the Highways Agency uses to search for cracks and potholes to repair. Extra higher-margin software sales meant adjusted pre-tax profit jumped by 32% to £2 million on revenue up 9% at £8.6 million.

And, despite a slight dip in revenue at the Vicon motion cameras division, margin improvement meant profit jumped 5.6% to £5.3 million. In fact it was only life sciences work that slowed, chief executive Nick Bolton told Interactive Investor. Sales to engineering and entertainment firms grew.

The year ahead looks promising here, too. OMG's camera technology has been bought by drone companies, virtual reality headset makers, and universities in 67 countries, giving valuable diversification.

Vicon is selling far more of its smaller, mid-range product, too, and its flagship motion capture camera, Vantage, which launched in June, has been well-received.

"It shipped well in the final quarter," said Bolton. In fact, it sold so well, we hear that senior management worked weekends through September to fill orders. Bolton himself admits to getting his hands dirty!

Bolton has also been busy talking to the big smartphone manufacturers. He won’t say who, but a number of players are interested in OMG's blur avoidance technology.

"Our IP can take motion measurement off the smartphone and apply it to imagery to fix the blur," explains Bolton. It's designed to make pictures taken on mid-range phones as good as those on the iPhone and top-end Samsungs.

Watch this space.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.